Posted on June 17, 2020June 18, 2020BirchStreet Insight Post #2: Doing More with Less – Embrace Automation and Go Touchless According to the American Hotel & Lodging Association’s Front Desk Feedback survey of members conducted between May 12-14, 2020, two out of three hotels in the U.S. are currently operating at less than 50% of pre-COVID staffing levels. While hiring has recently picked up in the U.S. hospitality sector, growing 15% during the three-week period from May 11 to May 31, the net effect is still a dramatic decrease in overall staffing across the industry. Indeed, in the same AHLA survey, 52% of hoteliers said they don’t expect their staffing levels to be fully resorted until at least the end of the year, and 38% said not until after December 31, 2020. Given diminished staffing levels will continue for the foreseeable future, it is clear that hospitality operators will have to become more efficient through technological transformation to make up for lost labor capacity. As McKinsey wrote during the early days of the crisis, “for all the uncertainty about what the future will look like, it’s clear already that it will be digital… (and) for many companies, the only option is to accelerate their digital transformation.” To that end, in consultation with our partners in the hotel, casino, managed food service, and restaurant sectors of hospitality, we have identified five technology initiatives that addresses operational areas ripe for efficiency gains and automation: procurement, invoice processing, vendor payments, inventory management, and storeroom operations. Not only do initiatives in these areas unlock a leaner operating model, touchless digital transformation will contribute to the overall health and safety of staff and guests through a dramatic reduction in paper handling and hand-written approvals. The companies that embrace best practice processes and technology now will reach the ‘next normal’ sooner, and will be better positioned to accelerate out of the downturn and return to profitability. We will be addressing automation initiatives in two parts: this post will focus on the first three business processes listed above: procurement, invoice processing, and vendor payments, which together make-up the Procure-to-Pay (P2P) process. Our next post will address inventory and storeroom management. Procurement: Whether your company partners with a GPO or manages buying independently, eProcurement software is the foundational building block for supply chain automation. With an eProcurement solution, procurement teams have the visibility and controls necessary to ensure buyers are purchasing the right products from approved vendors at the best possible price. Without eProcurement software, the buying process is opaque, time consuming, and prone to maverick spend. For example, if buyers are empowered to order by phone and don’t need to produce a P.O. before invoices are paid, what’s to prevent them from directing spend to non-approved vendors? Even when buyers are trying to follow corporate purchasing guidelines, the work is highly manual and error prone, and requires juggling spreadsheet after spreadsheet to figure out which vendor is approved and at what rate. Adopting an eProcurement solution that automates much of the buying processes solves these issues and more by aligning purchasing teams to best practice processes and approval workflows, which cuts down on time spent and paper touched. Furthermore, by aggregating spend across distributed locations into a single system, teams unlock strategic enterprise spend analytics and compliance reporting, have the tools to correct rogue spend, and, ultimately, obtain the data-driven leverage required to negotiate more effectively with suppliers. The below chart from Ardent Partners illustrates the competitive advantage top-performing procurement teams provide to their organization. For every dollar of enterprise spend, Best-in-Class teams deliver 3.128% savings gain, which is a tremendous impact to the bottom line for businesses of any size. Insight: Whether or not you use a GPO, eProcurement technology is the essential building block of effective supply chain management and provides a highly compelling ROI. Empirically, Best-in-Class procurement functions deliver 3.128% savings gain on every dollar of enterprise spend. Invoice Processing: Industry surveys show that finance and operations leaders know there are significant efficiencies to be gained from digitizing invoices, but as the hospitality industry was booming for the last decade, back office transformation projects were occasionally put off, based on the outmoded thinking that “We’re far too busy to even contemplate digitizing our invoice management processes.” Now, smart hoteliers, restaurateurs, and suppliers are recognizing the enormous ROI of automating and digitizing invoice processing, and are capitalizing on the Covid-19 ‘downtime’ to align to best practices. Indeed, as Ardent Partner’s AP Metrics report from March 2020 illustrated, organizations are increasingly viewing AP as a strategic unit rather than a cost center, and recognizing that full P2P automation “can drive tremendous value to the greater organization…top-performing organizations have made P2P automation part of their technological foundation.” To illustrate the significant bottom-line cost savings related to invoice processing automation, let’s use as an example a full service 250 room hotel that is managing 6,500 incoming invoices per year. Research firm Sterling Commerce has stated that the cost of processing a single invoice can be up to $30, but assuming a more conservative average cost of $12.50 per invoice, the total cost for processing invoices for our example hotel is $81,250 per year. If this property is part of a management company with 20 similar-sized hotels, the resulting costs comes to an eye-watering $1,625,000. By adopting Best-in-Class tools and aligning to invoice processing best practice, that number can be reduced by 80% or more. Using our example above, that means $68,250 in savings per property, and $1,365,000 across the management company’s portfolio. How is this possible? By digitizing the entire P2P process, many labor and time intensive tasks are automated, and better visibility and control also eliminates profitability leakage that occurs through overpayment of invoices. Indeed, Best-in-Class P2P software, coupled with strong corporate leadership, can drive straight-through invoice processing rates to 80%+. That means four out of five invoices do not require any manual intervention by a staff member because the purchase order, invoice, and receiving record all matched within pre-set tolerances on the quantity, price, and other header-level details. Additionally, by employing an invoice management solution that does the job of digitizing invoices for you, there is no longer a need for property or corporate resources to key-in information and handle large quantities of paper. In this digitized and automated environment, staff only need to review exceptions, and with tools like an automated invoice exception report, they can quickly identify why the documents are not matching, whether it’s because of a price discrepancy, over/under received items, or substitutions. With all these tools in place, time spent processing invoices can be cut from days to hours, and invoice processing costs can conservatively be reduced to $2/invoice. Ultimately, automation in the back-office lowers cost, enables teams to do more with less, and allows resources to focus on the guest experience rather than the unnecessary paperwork of processing AP. Insight: An average 250 room hotel can realize a $68,250 net cost savings by adopting Best-in-Class invoice automation processes and technology Payments: At a time when many of us are not able to go to the office and are wary of handling paper, doing manual check runs can be a logistical nightmare. We’ve heard the horror stories: AP clerks driving to the office to lug home 30 pound Pitney Bowes machines; runners responsible for payments up and quitting during the pandemic, leaving teams scrambling and vendors unpaid; cash flow reports being enormously difficult to pull due to invoice latency and accruals. When cash is king, adopting Best-in-Class programs to conserve capital is critical. Here’s where modern payment solutions come into play: they solve the above logistical problems while injecting cash back into your business. By partnering with an integrated payments solution provider on a segmentation and communication plan to convert suppliers from high-cost, low-security checks to more advantageous payment types like ACH and vCard, electronic B2B payment solutions can manage the entire payment process regardless of payment type while providing full visibility into the process. These programs support better cash management by: Reducing costs: Vendor enablement team shifts payments away from costly paper checks to low-cost ACH or no-cost vCard. Further adding to the value, with staff reduced at many hotel management companies and resources needed to be reallocated to other activities, the payment process is as easy as dragging and dropping the payment file into the software: no check printing, envelope stuffing, or postage necessary. Increasing revenue: Best-in-class solutions are generally able to convert 20% of vendor spend to vCard; vendors get a more secure, consistent, and convenient form of payment in exchange for paying interchange fees. A portion of these interchange fees are rebated back to the buyer , generating a new revenue stream. Increasing DPOs: Payments module provides better control over payments going out the door with real-time reporting and dashboards that give insight into all spend. Further, top solutions will work with your vendors to extend your payment terms and thereby improve working capital dynamics and enable capture of early payment discounts. Indeed, here are the bottom-line results a typical full service hotel can expect: Insight: As one customer of BirchStreet Pay inquired early on: “Wait, so you process all my payments, and then after doing all that work you send us a check?” Yes. Automating the P2P cycle and aligning to industry best practice has a clear and compelling ROI. Between the reduction in direct cost and the ability to redeploy resources to more strategic initiatives, the case for back office automation in hospitality has never been stronger. Next week, we will focus on the business processes related to inventory and storeroom management. Like P2P, these operations can be made dramatically more efficient and cost-effective through adoption of Best-in-Class tools.